Private Debt: The Complete Guide

Corporate Finance and Strategic Advisory · CGPH Banque d’affaires

Private debt has grown from roughly $557 billion under management in 2014 to more than $3 trillion today, with some forecasts putting it near $5 trillion by 2029.^{1 2} At the same time, US private credit hit a record 6.0% default rate in April 2026, and the Financial Stability Board has formally warned that banks and insurers now carry hundreds of billions of dollars of exposure to the asset class.³ Both facts are true at once, and both matter to any company weighing private debt as a financing option. This guide explains what private debt actually is, how it differs from a bank loan, the main strategies within the asset class, where the market’s growth has come from, what the current stress signals mean, and when private debt is, and is not, the right tool for a company’s capital structure.

What is private debt?

Private debt, also called private credit, is financing extended directly to companies by non-bank lenders — specialist asset managers and dedicated funds — rather than through a bank loan or a publicly syndicated and traded bond. The loans are typically unrated, bilaterally negotiated, and held to maturity by the lender rather than distributed to a broad syndicate of investors, which is the core structural difference from both traditional bank lending and the broadly syndicated loan and high-yield bond markets.

Private debt sits alongside private equity and venture capital as one of the three main pillars of private capital, but with a fundamentally different risk-return profile: lenders sit above equity holders in the capital structure and target contractual interest income and principal repayment rather than equity-like upside. That is why private debt is often the more suitable instrument for a company that wants growth capital, a recapitalization, or acquisition financing without diluting existing shareholders — a direct contrast to the venture capital route and the private equity route covered in our companion guides.

A brief history: how banks’ retreat created a $3 trillion market

Private credit is not a new invention. Pioneers including Apollo and Oaktree launched dedicated vehicles in the 1990s, and private debt fundraising already stood at $109.5 billion in 2008, but its explosive growth since then is a direct consequence of bank regulation after the global financial crisis.⁴ Dodd-Frank in the US and Basel III internationally raised the capital banks must hold against leveraged and mid-market corporate loans, making that lending materially less attractive for traditional balance sheets. Non-bank lenders stepped into the gap:

• 2008–2014 — early post-crisis growth, as regulatory capital rules bite and institutional investors, hunting for yield in a near-zero rate world, begin allocating to private credit funds; assets under management reach roughly $557 billion by 2014.
• 2014–2023 — the asset class becomes mainstream among institutional allocators — pensions, insurers, sovereign wealth funds — crossing $2 trillion by 2023 as private-equity-backed mid-market buyouts increasingly turn to direct lenders instead of syndicated leveraged loans.
• 2023–2026 — growth continues past $3 trillion, private credit becomes a mainstream allocation for insurers in particular, and the asset class starts financing an entirely new category of borrower — most notably the AI infrastructure and data-centre buildout — at a scale that puts it squarely in the path of banks’ traditional large-corporate lending business.

The main types of private debt

Private debt is not a single instrument; strategies are typically distinguished by where they sit in the capital structure and the risk and return they target:⁵

• Direct lending — the largest strategy by assets under management. A fund originates a senior secured, first-lien loan directly to a borrower, typically a mid-market company with $10–150 million of EBITDA, often private-equity-sponsored, and holds it to maturity. Usually floating rate, historically priced around SOFR + 500–700bps though competitive pressure has compressed spreads on the most contested deals toward the lower end of that range, five-to-seven-year maturity, targeting a 9–12% net IRR with 60–75% recovery in a default scenario.
• Unitranche — combines what would otherwise be separate senior and subordinated tranches into a single loan and a single covenant package for the borrower, with the lender group privately allocating the economics behind the scenes. Dominant in mid-market sponsor-backed deals, and typically priced a little above direct lending to reflect the blended risk.
• Mezzanine debt — sits between senior secured debt and equity, usually unsecured or subordinated, with a fixed coupon commonly in the 10–14% range plus equity warrants or payment-in-kind interest to compensate for its junior ranking, where recovery is typically only 20–40% in default. Targets a mid-to-high-teens net IRR.
• Distressed debt — buying the debt of financially troubled companies at a steep discount, often 40–70 cents on the dollar, and generating returns through restructuring or a subsequent recovery; historical returns in the mid-teens-to-mid-twenties net IRR in favorable credit cycles, with significant variability by vintage.
• Venture debt, infrastructure debt, and real estate debt — more specialized strategies providing debt financing, rather than equity, to venture-backed companies, long-life infrastructure assets, and real estate, respectively.

(Pricing and return benchmarks above are commonly cited industry ranges rather than figures from a single data provider, and move with the credit cycle; a borrower should always confirm current terms against live market quotes rather than a published range.)

Why companies choose private debt over a bank loan or an equity raise

For a company evaluating financing options, private debt’s appeal relative to the alternatives is fairly specific:

• Speed and certainty — a direct lender can typically underwrite and close faster than a syndicated bank process, and offers more price certainty once terms are agreed, because there is no broader syndication risk to work through.
• Flexibility — private lenders can structure bespoke terms, on payment schedules, covenants, and use of proceeds, that a standardized bank facility or a public bond typically cannot accommodate.
• No dilution — unlike a venture capital or private equity raise, debt financing does not require giving up equity ownership or board control, which matters enormously to founders and family-owned businesses that want growth capital without changing who owns the company.
• Access for borrowers banks won’t serve — many mid-market companies are simply too small, too levered, or too idiosyncratic for a syndicated loan or public bond, and private credit is frequently the only institutional financing route available to them.

The trade-off is cost: private debt is priced meaningfully above a comparable bank facility precisely because it takes on the borrowers and structures that banks, since 2008, are no longer capitalized, or willing, to hold.

Where the market stands in 2026: growth and stress, at the same time

Two things are true of private credit in 2026, and a credible advisor should present both.

The growth case remains intact. The market has grown by roughly half since 2020 and is forecast to approach $5 trillion in assets under management by 2029, driven by continued bank retreat from leveraged lending, insurer appetite for higher-yielding fixed income, and — the newest driver — direct financing of AI infrastructure. Meta’s $27 billion Hyperion data-centre financing, structured with Blue Owl Capital, illustrates how private credit has become a genuine funding source for physical AI infrastructure, alongside its long-standing role in leveraged buyouts (see our companion Private Equity guide).^{1 6}

The stress case is now equally real. Fitch Ratings reported a record 6.0% US private credit default rate in April 2026, following a 9.2% default rate among corporate borrowers in 2025; Moody’s found that roughly 65% of those 2025 defaults involved distressed restructurings rather than outright failures. Separately, Bank of America’s credit strategy team has described private credit as showing the weakest asset quality across its leveraged finance coverage. The Financial Stability Board has warned that banks carry hundreds of billions of dollars of direct and indirect exposure to private credit funds, and disclosed exposures are material at individual institutions — JPMorgan disclosed roughly $50 billion of exposure on its Q1 2026 earnings call, and Deutsche Bank has disclosed $30 billion — alongside specific losses such as UBS’s $500 million exposure to the collapsed auto-parts supplier First Brands and Jefferies’ $715 million issue involving questionable receivables. Life insurers — some, like Apollo-backed Athene, allocating more than 15% of assets to private credit — have drawn direct attention from the US Treasury, which has convened state insurance commissioners to assess the risk.³

Neither fact cancels the other out. Private credit remains a genuinely useful, often necessary, financing tool for mid-market companies, and 2026 is also the year the asset class is undergoing its first real test of underwriting discipline at scale — precisely the kind of environment in which the quality of the lender, the structure, and the advisor arranging the financing matters most.

The role of a debt advisory specialist

Structuring private debt well, as a borrower, is a different discipline from either an M&A process or an equity raise, and it is where CGPH Banque d’affaires’ debt solutions practice is most directly engaged:

• Instrument selection — matching direct lending, unitranche, mezzanine, or a blended structure to the company’s actual cash-flow profile and growth plan, rather than defaulting to whatever a single lender relationship happens to offer.
• Competitive process design — running a structured process across multiple private credit funds, rather than a single bilateral conversation, to secure genuine price and covenant tension.
• Covenant and structure negotiation — the terms that determine how much operating flexibility a company retains through a downturn matter as much as the headline interest rate.
• Cross-border execution — coordinating lenders, security packages, and intercreditor arrangements across jurisdictions for companies raising debt to fund cross-border growth or acquisitions.
• Independent, lender-agnostic advice — in a market where, as 2026 has shown, underwriting quality varies significantly between lenders, an independent advisor’s primary job is distinguishing a well-structured facility from one that merely looks competitive on price.

Sources

1. PitchBook, Private Debt: The Ultimate Guide — pitchbook.com
2. Morgan Stanley, Private Credit Outlook: Estimated $5 Trillion Market by 2029 — morganstanley.com
3. Forbes, Rising Private Credit Defaults Are Testing Banks and Insurers — forbes.com ; JPMorgan Q1 2026 earnings call (disclosed private-credit exposure).
4. PitchBook, Private Debt: The Ultimate Guide (post-2008 origins), as source 1 above.
5. CT Acquisitions, Private Debt Explained: 2026 Guide to Direct Lending, Mezzanine, and Distressed Debt — ctacquisitions.com
6. HarbourVest, 10 Deals that Defined Private Markets in 2025 (Meta Hyperion / Blue Owl) — harbourvest.com

This article is provided for general information purposes and does not constitute investment or lending advice. Market size estimates, pricing benchmarks, and default statistics are as reported by the cited sources at the time of writing and evolve as the credit cycle develops.